On the map with Aircraft Leasing
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eyfs.ie
On the map
with Aircraft
Leasing
As we move into 2018, we 1 Why choose Ireland? Ireland is one of the few EU countries where
explore four aircraft leasing Ireland at a glance
the Cape Town Convention, the international
treaty governing moveable property, is
regimes worldwide to part of national law. In addition to the
The aircraft leasing industry in Ireland
assist your decision making traces its roots back to the establishment of Conventions registry of aircraft equipment
process for new leasing Guinness Peat Aviation in Ireland in 1975, being located in Ireland, the Irish High
and with it the birth of the aircraft leasing Court is also appointed as the international
opportunities. industry. Over the following 40 years Ireland centre for aircraft leasing disputes under the
established itself as the primary global hub Convention. Aircraft registration with the
While Ireland will continue as for aircraft leasing. Here, we examine the key Irish Aviation Authority (IAA) also remains
the global centre of aircraft factors that make Ireland such an attractive one of the most desirable registrations
leasing, other centres will offer location. globally.
opportunities and benefits for Government policy, reinforced by successive Irish fiscal policy has focused on maintaining
different classes of investors and Irish governments, provides key support to and advancing Ireland’s competitive regime
the industry in Ireland. Irish governments for aircraft finance and leasing. There are a
different markets.
have continued to encourage investment in number of key tenets to the Irish tax regime
We envisage that lessors and the industry locally by introducing measures which support this including;
investors will continue to adopt which ensure Ireland remains a favourable • 12.5% corporate tax rate on lease rental
a multijurisdictional strategy location for aircraft finance and leasing. This income, and gains on aircraft, where an
to doing cross border leasing. speaks to the importance of the industry in aircraft lessor is regarded as carrying on
At the same time, international Ireland and the appetite at a government trading activity;
tax developments place more level to both retain existing companies within
• Accelerated tax depreciation over eight
emphasis on aligning profits and Ireland, and attract new entrants in the
years, with the claw back limited to where
substance. Lessors need to think market to establish operations.
sales proceeds exceed tax basis;
about how they allocate business From a practical perspective, Ireland’s
• An extensive double tax treaty network
functions and human resources business environment, and central time
of over 73 treaties, which minimise or
across their platforms to the zone, provides an ideal setting for a global
eliminate withholding and income taxes on
industry such as aircraft leasing. Ireland has
best effect. inbound lease rental payments;
a well-developed, English language, legal
and regulatory regime, based on a common • No withholding tax on lease rental
law system. This is supported by a nexus payments, and broad domestic law
of professional advisors available locally, exemptions from withholding tax on
including tax advisors, lawyers, accountants, interest and dividends paid from Ireland
service providers, technical and marketing to countries with whom Ireland has a tax
professionals, etc, with expertise developed treaty in place;
over 40 years dealing with aircraft leasing • 0% VAT regime for aircraft leasing with full
and finance. recovery on aircraft leasing activities;and
eyfs.ie
• Exemption from stamp duty on aircraft Taxable profits normally consist of net Rates - Universal Social Charge:
and certain aircraft related transactions. business profits as disclosed in the financial The Universal Social Charge (USC) is charged
In addition to the above, there are generally accounts and adjusted to account for at the following rates and income thresholds.
no transfer taxes on the sale of aircraft deductions not allowed or restricted by tax
in Ireland and currently no onerous thin legislation. Income Rate
capitalisation, CFC or exit tax rules. Directors’ fees: Directors’ fees paid by
Not
companies incorporated in Ireland are
Securitisation Exceeding exceeding
taxable in Ireland, regardless of the tax
Ireland is internationally recognised as a EUR EUR %
residence of the director or the place where
location of choice for securitisation vehicles. 0 12,012 0.5 (a)
duties are performed. Directors’ fees paid
The holding and leasing of aircraft is
by non-Irish companies to Irish residents are 12,012 19,372 2
permitted through the Irish securitisation tax
taxable in Ireland. Non-domiciled individuals
regime. The regime provides a tax neutral 19,372 70,044 4.75
do not pay tax on directors’ fees received
solution to facilitate the securitisation of 70,044 - 8 (b)
from foreign companies if all of the duties
aviation assets for investment by non-
are performed outside Ireland unless that 100,000 - 11 (b)
Irish resident investors in a capital market
income is remitted to Ireland.
transaction. Irish securitisation vehicles can (a) This income is exempt if income does not exceed
also generally access Ireland’s double tax Taxation of employer-provided stock EUR13,000.
treaty network. options: In general, employer-provided share (b) The 11% rate applies to “relevant income,”
options are subject to income tax, Universal excluding employment income that exceeds
EUR100,000. Consequently, the 8% rate applies to
Islamic finance regime Social Charge (USC) and employee PRSI at employment income exceeding EUR100,000.
Islamic finance is an increasingly popular the date of exercise on the market value of
source of funding for many companies and the shares at the date of exercise, less the The USC applies to all income, including
specific legislation has been put in place to sum of the option and exercise prices by non-cash benefits-in-kind and equity
encourage Islamic investment into Ireland. reference to the number of work days spent compensation under an unapproved scheme,
The Irish tax rules aim to treat certain in Ireland during the vesting period. subject to certain exceptions. It applies
Islamic finance transactions on the same Restricted stock units (RSUs) are generally to all income before relief for pension
basis as non-Islamic transactions. taxed at the date of vesting. contributions and deductions for capital
Regulated alternative investment funds Key Employee Engagement Programme allowances.
Ireland is also a leading global jurisdiction (KEEP): A share-based remuneration Rates – Social Insurance (PRSI): 4% on
for investment management activities incentive is being introduced to facilitate gross income
offering regulated alternative investment the use of share-based remuneration by The Special Assignee Relief Programme
structures that are suitable for holding unquoted SME companies to attract key (SARP). SARP is available to employees
investments in leasing assets. Regulated employees. Gains arising to employees on who are assigned to Ireland by a relevant
alternative investment funds are targeted at the exercise of KEEP share options will be employer. For this purpose, a relevant
sophisticated and institutional investors, who liable to CGT on disposal of the shares, in employer is a company incorporated and
meet minimum subscription and financial place of the current liability to income tax, resident in a country with which Ireland
resource requirements. They are essentially USC and PRSI on exercise. This incentive has entered into a double tax treaty or an
exempt from Irish tax and there are no Irish will be available for qualifying share options information exchange agreement, or an
taxes on investment returns to non-resident granted between 1 January 2018 and 31 associated company of such a company. It
investors. December 2023. applies to assignments commencing up to
Rates – Income Tax: the end of 2020.
Personal tax in Ireland
The following table presents the 2018 Under SARP, an exemption from income tax
Employment income: Most payments made
income tax rates. Nonresidents are taxed at on 30% of employment income in excess of
by an employer, including salary, bonuses,
the same rates as residents. EUR75,000 is granted for up to five years.
benefits in kind, certain equity income and
expense allowances, are subject to income In addition, the cost of one return trip to
Taxable income
tax. Tax on Rate certain home locations per year for the
Not lower on employee and his or her spouse and children
Employers’ PRSI at a rate of 10.85% Exceeding exceeding amount excess can be provided tax-free. Also, the employer
also applies to any benefits provided to
EUR EUR EUR % can pay or reimburse tax-free education
employees.
costs of up to EUR5,000 per year per child.
In general, nonresidents are subject 0 35,550 0 20
Single Under a certification procedure for the
to income tax on employment income, 34,550 - 6,910 40 relief, the employer must certify within 30
regardless of their domicile, if their duties days of arrival that the employee meets the
are carried on, and if their salary is paid, in 0 43,550* 0 20 conditions.
Ireland. Married
43,550* - 8,710 40
Self-employment and business income:
Individuals resident in Ireland are subject * This income bracket applies to a married couple
to tax on income from trades and with one spouse earning. If both spouses have
income, the 20% income bracket is increased by €1
professions carried on in Ireland and abroad.
for every €1 received by the other spouse, up to
Nonresidents are taxed on income from a maximum income bracket of €69,100 with the
trades and professions carried on in Ireland balance taxed at 40%.
only.eyfs.ie
2 Why choose Singapore? through a partnership in Singapore. Foreign- 3 Why choose Hong Kong?
source income received in Singapore by a
Singapore has become a global non-resident individual is specifically exempt In order to attract aircraft leasing
transportation and international from tax. and aircraft leasing management
maritime centre, assisted by Individuals are resident for tax purposes businesses to Hong Kong, the
an attractive overall business if they are physically present or exercising authorities introduced a new
environment, extensive tax treaties employment (other than as a director of a dedicated tax regime offering
company) in Singapore for at least 183 days
with more than 80 jurisdictions, as incentives to qualifying aircraft
during the year preceding the assessment
well as targeted tax incentives such lessors (QALs) and qualifying aircraft
year.
as the Aircraft Leasing Scheme leasing managers (QALMs) in Hong
Non-resident individuals employed for
(ALS). Kong.
not more than 60 days in a calendar year
Aircraft Leasing Scheme (ALS) in Singapore are exempt from tax on The concessionary tax treatment applies
Under the ALS, approved aircraft lessors and their employment income derived from retroactively to amounts paid, received or
aircraft investment managers can enjoy the Singapore. This exemption does not apply to accrued on or after 1 April 2017.
following tax benefits: a director of a company, or a professional in
Concessionary tax regime for QAL and
Singapore.
• Approved aircraft lessors enjoy a QALM in Hong Kong
concessionary tax rate of 8% on income Frequent business travellers (foreign Subject to certain anti-avoidance provisions,
derived from the leasing of aircraft or employees based outside Singapore but corporations that meet the specified
aircraft engines and qualifying ancillary who travel into Singapore for business conditions may make an irrevocable election
activities. purposes) may have a tax liability arising in writing to avail of the concessionary tax
from their presence in Singapore, depending regime. Under the concessionary regime:
• Approved aircraft managers enjoy a
on their total number of employment days in
concessionary tax rate of 10% on income • Qualifying profits of QALs and QALMs will
Singapore.
derived from managing the approved be taxed at the 8.25% concessionary tax
aircraft lessor and qualifying activities. Under the Not Ordinarily Resident (NOR) rate, i.e., 50% of the current 16.5% profits
scheme, a qualifying individual may enjoy tax tax rate.
• Automatic withholding tax exemption on
concessions for five consecutive assessment
interest and qualifying related payments • In lieu of tax depreciation allowances,
years, including time apportionment of
on loans obtained for the purchase of the deemed taxable income derived
Singapore employment income, if certain
aircraft or aircraft engines. from the leasing of aircraft to an aircraft
conditions are satisfied.
ALS is approved on a case-by-case basis operator by a QAL will be equal to 20% of
Taxable employment income includes cash the lessor’s tax base consisting of gross
by the Economic Development Board of
remuneration, wages, salary, leave pay, rentals less deductible expenses other
Singapore. To qualify for the ALS, companies
directors’ fees, commissions, bonuses, than tax depreciation allowances, i.e. an
will be assessed on quantitative and
gratuities, perquisites, gains received from effective corporate tax rate of 1.65%.
qualitative aspects of the aircraft leasing
employee share plans and allowances
operations such as establishing substantive • An aircraft owned by a QAL and used for
received as compensation for services.
activities and performing strategic functions carrying out qualifying aircraft leasing
Benefits-in-kind derived from employment,
in Singapore, headcount, total business activities for a continuous period of not
such as home-leave passage, employer-
expenditure, etc. less than 3 years is to be treated as a
provided housing, employer-provided
To continue to encourage the growth of the automobiles and children’s school fees, are capital asset. The disposal of a capital
aircraft leasing sector in Singapore, the ALS also taxable. asset is not subject to Hong Kong profits
was extended for another 5 years until 31 tax.
A person who is a tax resident in Singapore
December 2022. • Finance leases or hire purchase
is taxed on assessable income, less personal
deductions at graduated rates ranging from arrangements are ineligible for the
Other notable features:
0% to 22% (tax rates applicable with effect concessionary tax treatment.
The corporate income tax rate in Singapore
is 17%. Singapore has no thin capitalisation from the year 2016). A QAL or QALM must meet “substantial
rules and no CFC rules. Tax depreciation The rates of tax applied to the income of activity requirement” by carrying out the
of an aircraft can be made over 3 to 20 non-resident individuals are as follows: profit producing activities by themselves
years and there is no stamp duty on aircraft in Hong Kong or arrange to carry out
• Income from employment (other than such activities in Hong Kong as one of the
leasing transactions. directors’ fees) – greater of 15% or tax specified conditions of the concessionary
Singapore has signed double taxation payable as a resident. tax regime. Recent guidance explains that
agreements with more than 80 jurisdictions. Note: Employment income of non-resident
the core income generating activities which
individual employed in Singapore for no more than
Personal Tax produce the qualifying profits of a QAL or
60 days in a calendar year is exempt from tax.
A person is subject to tax on employment QALM include: raising funds; agreeing on
income for services performed in Singapore, • Income from directors’ fees is taxed at funding terms; identifying and acquiring
regardless of whether the remuneration 22%. aircraft to be leased; soliciting lessees;
is paid in or outside Singapore. Resident setting the terms and duration of leases;
individuals who derive income from sources monitoring and revising lease agreements;
outside Singapore are not subject to tax on managing any risks and maintaining
such income. This exemption does not apply documentation.
if the foreign-sourced income is receivedeyfs.ie
For lessors that are established as a special territorial basis of taxation; therefore, the Rates: Three separate income taxes are
purpose vehicle (SPV) to hold an aircraft, concept of tax residency has no significance levied in Hong Kong instead of a single
guidance states that it may be necessary in determining tax liability, except in limited unified income tax. The following rates are
to consider whether the SPV has sufficient circumstances. the applicable rates for the three taxes for
nexus with the active conduct of aircraft Employment income: Taxable income the period from 1 April 2017 through 31
leasing activity in Hong Kong, including the consists of all cash emoluments, including March 2018:
engagement of an aircraft leasing manager bonuses and gratuities. Benefits in kind • Profits tax: levied on non-corporate
carrying on business in Hong Kong, to be are largely non-taxable, unless they are professional, trade or business income at a
treated as a QAL. convertible into cash or specifically relate to flat rate of 15%
Taxpayers are required to submit a realistic holiday travel or the education of a child. The • Property tax: levied at a flat rate of 15% on
business plan for carrying out their aircraft provision of accommodation by an employer rental income, after a standard deduction
leasing activities in Hong Kong in the year of creates a taxable benefit equal to an amount of 20%
commencement for the assessment of the ranging from 4% to 10% of the employee’s
• Salaries tax: levied on net chargeable
“substantial activity requirement.” Taxpayers other taxable income, depending on the type
income (assessable income less personal
who wish to have certainty regarding their of accommodation.
deductions and allowances) at progressive
eligibility for the concessionary tax regime An employee is subject to salaries tax if his rates ranging from 2% to 17%, or at a flat
may apply for an advance ruling. or her employment income is sourced in rate (maximum rate) of 15% on assessable
There are safe-harbour rules under which Hong Kong, even if he or she is not ordinarily income less personal deductions,
a corporation not dedicated solely to resident in the territory. However, except whichever calculation produces the lower
carrying out the qualifying aircraft leasing for directors’ fees, a specific statutory tax liability
management activities would still qualify as exemption applies if an employee renders all
The following are the progressive rates for
a QALM. his or her services outside Hong Kong or if
salaries tax for the period from 1 April 2017
an employee renders services in Hong Kong
Onshore aircraft leasing through 31 March 2018.
during visits to Hong Kong not exceeding
QALs that lease their aircraft to a Hong
a total of 60 days in a year of assessment. Taxable Tax Tax Cumulative
Kong aircraft operator (i.e., onshore aircraft
Conversely, if a non-resident engaged in non- income rate due tax due
leasing) can remain under the normal tax
Hong Kong employment renders services in HKD % HKD HKD
regime without making the concessionary
Hong Kong during visits totalling more than
tax regime election. Under the normal First 45,000 2 900 900
60 days in a year of assessment, he or she is
regime, QALs will generally be entitled to tax
taxed on a pro rata basis. Next 45,000 7 3,150 4,050
depreciation allowances for the aircraft and
be taxed at the 16.5% standard tax rate. Directors’ fees: Directors’ fees derived from Next 45,000 12 5,400 9,450
a company that has its central management Remaining 17 - -
Features of general tax regime and control in Hong Kong are subject to
• Hong Kong does not impose withholding salaries tax in Hong Kong. Otherwise,
tax on dividends paid to domestic directors’ fees are not taxable. Hong Kong does not impose any social
or foreign shareholders. In addition, security taxes. Employers and employees
Taxation of employer-provided stock are each required to contribute the lower of
dividends received from foreign options: Employer-provided stock options
companies are not taxable in Hong Kong. 5% of the employees’ salaries or HKD 1,500
are generally taxable at the time of exercise. per month to approved mandatory provident
• Hong Kong does not impose VAT or sales However, for an individual who has non- fund schemes unless the employees are
tax. Hong Kong employment and is taxed on a covered by other recognized occupation
• Generally, income derived from or arising pro rata basis by reference to the number retirement schemes.
outside Hong Kong is exempt from tax of days of his or her services in Hong Kong
under the territorial taxation system. only, part or all of the option gain may be
excluded from taxable income. The amount
• Hong Kong has signed comprehensive
excluded depends on various factors
avoidance of double taxation agreements
including whether the option is granted
with 38 jurisdictions.
conditionally or unconditionally, and, if
Islamic Finance granted conditionally, the number of days on
A special legislative framework provides which the individual performed Hong Kong
comparable tax treatment in terms of stamp services during the vesting period.
duty, profits tax and property tax for some Taxation of employment-related share
common types of Islamic bonds (sukuk), awards: Employment related share awards
vis-à-vis conventional bonds. However, no are generally considered to be perquisites
special tax incentives are conferred on from employment and taxed as part of the
Islamic bonds. remuneration. In general, they become
Personal Taxation taxable when an employee is entitled to the
full economic benefit of the shares awarded.
Individuals earning income that arises in
If the employee has a non-Hong Kong
or is derived from a Hong Kong office or
employment, proration of the income by
Hong Kong employment, or from services
reference to the number of days of his or her
rendered in Hong Kong during visits of more
services in Hong Kong that is similar to the
than 60 days in any tax year, are subject
proration applicable to stock option benefits
to salaries tax. Hong Kong observes a
may also be allowed.eyfs.ie
2. Value Added Tax (VAT) • Rates: Income is not accumulated for
4 Why choose the China • Leasing of tangible assets (including purposes of calculating monthly tax
operating lease and finance lease) within liabilities. Income tax for individuals is
Free Trade Zone? China should be subject to VAT at 17%. computed on a monthly basis by applying
the following progressive tax rates to
Aircraft leasing companies generally • Sale and lease back arrangements are
regarded as loan arrangements from a employment income.
consider certain Free Trade Zones
(FTZs) as the choice of location VAT perspective and subject to 6% VAT.
Taxable Tax Tax Cumulative
for setting up SPVs for their cross- 3. Local Surcharges income rate due tax due
border leasing transactions in China. The enterprises shall be liable for local CNY % CNY CNY
surcharges, which are calculated based on First 1,500 3 45 45
Currently, Tianjin Dongjiang Free Trade Port
the total amounts of VAT and Consumption
Zone is the most attractive and mature FTZ Next 3,000 10 300 345
Tax paid by the taxpayer.
for major aircraft leasing companies and has
Next 4,500 20 900 1,245
the largest number of established aircraft 4. Stamp Duty
leasing companies. Next 26,000 25 6,500 7,745
• Operating lease agreements are subject to
The FTZs provide a series of incentives stamp duty at 0.1% of the rental income. Next 20,000 30 6,000 13,745
by way of fiscal subsidies to the aircraft • The applicable stamp duty rate for finance Next 25,000 35 8,750 22,495
leasing companies invested in the FTZs. lease agreements is 0.005% since they are Above 80,000 45 - -
The fiscal subsidies are sourced from the categorized as loan agreements.
locally retained fiscal revenues. The specific 6. FTZs’ incentives
fiscal subsidies to be granted to each leasing 5. Individual Income Tax (IIT)
The specific fiscal subsidies to be granted to
company will be subject to case-by-case • Employment income: The types of taxable
each leasing company will be subject to case-
negotiation. compensation under the China IIT law
by-case negotiation. The fiscal subsidies
include, but are not limited to, wages
We list below the key tax implications are sourced from the locally retained fiscal
and salaries, foreign service or hardship
which are applicable for the aircraft leasing revenues:
allowances, cost of living and automobile
companies and the possible forms of • CIT / WHT, 40% retained locally
allowances, tax reimbursements, bonuses
incentives offered by the FTZs to the aircraft
and equity compensation. The form of the • VAT / withholding VAT, 50% retained
leasing companies invested in the FTZs.
individual income may be cash, physical locally
1. Corporate Income Tax (CIT) / objects, securities and economic interests • Stamp Duty, 100% retained locally
Withholding Tax (WHT) in any other form.
• Local Surcharges, 100% retained locally
• For both operating leases and finance • Directors’ fees: Directors’ fees are
leases, the enterprises are in general • Individual Income Tax, 40% retained locally
considered income from independent
subject to a standard CIT rate of 25%. Tax personal services and are taxed as income • Cost reimbursement, e.g. cash
losses can be carried forward for up to five derived from labor services. However, reimbursement based on registered
years. directors’ fees paid to a company director capital, cash reimbursement on the certain
• A foreign enterprise without an are taxed as “wages and salaries” if he or percentage of office rental expenses in the
establishment in China is subject to WHT she is an employee of that company or a stipulated period, cash reimbursement on
generally at 10%. The WHT rate can be related company. If the director is not also pre-operating expenses, etc. ■
reduced by the relevant articles in the an employee of the company, his or her
double tax treaties. China has signed directors’ fees may be taxed under the
double tax treaties with 106 jurisdictions. “labor service” category.You can also read
